Shareholder challenges funding by Magna parent

August 27, 2008|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

The parent of Magna Entertainment Corp., which owns Laurel Park and Pimlico Race Course, must stop funding the racetrack company's operations at the behest of its founder, a dissident shareholder of MI Developments Inc. said yesterday in a regulatory filing.

Magna's ability to stay in business has been in "substantial doubt," according to its auditor, after losing money since 2002. But the company has survived on cash infusions from MID and Frank Stronach, the founder and chairman of both companies.

More recently, Magna's financial troubles have been a concern for some Maryland lawmakers as voters prepare for a November referendum that would legalize slot machines. The Laurel track could be granted slots under the measure, and Magna has indicated that it plans to bid on the license.

In a letter to MID directors, David Einhorn, president of New York investment firm Greenlight Capital, called on the board to take steps that don't require Stronach's support to protect MID's value.

Stronach, interim chief executive of Magna, has control of MID and Magna through majority voting shares. Greenlight owns 10.9 percent of MID.

Moreover, Einhorn decried Ontario-based MID's repeated extensions on the due date of as much as $210 million owed by Magna. Einhorn urged the board to consider foreclosing on the senior debt or selling the debt to a third party.

"We minority shareholders are looking to you to protect our interests from Mr. Stronach's continued irresponsible, uneconomic and self-serving support of MEC," Einhorn said.

Dennis Mills, MID's interim chief executive, said yesterday that the company wants to work with all shareholders to find a solution regarding its relationship with Magna. He notes MID recently hired Canadian investment bank GMP Securities for this task.

"We're dealing with this issue with the speed of Olympians," Mills said. "Make no mistake, Frank Stronach didn't build a reputation over 50 years to all of a sudden have it stained."